In Edmonton, They Are Rethinking Public/Private Ventures

DC Water was formed in 1996. So was a Canadian company called EPCOR. Both came from and have driven tremendous change. I am obviously proud of how far DC Water has come since 1996. Yet I am flabbergasted at what EPCOR has done in the same time frame. We have much to learn from our brethren in Alberta, Canada!

Alberta? I remember growing up knowing Edmonton as the home of the Oilers and Wayne Gretsky. Otherwise, it seemed like a far off place to me. And to many, it is – with the North Saskatchewan River snaking its way through its middle, Edmonton is far closer to Vancouver and the Canadian Rockies than anywhere else.

In 1996, the DC government and the United States Congress made a joint compact to create an independent District agency that would provide some services to every resident, business and visitor to Washington, DC – and provide essential wastewater treatment to heavily populated portions of key counties in both Maryland and Virginia. Armed with our own financial, personnel and procurement powers, the people of DC Water have built that organization into an entity that aspires to be world class in everything it does. We are not there yet on some fronts, but on others, we stand tall!

Edmonton in 1995 had a city public works department that managed drinking water, wastewater treatment, and solid waste collection – and in a major way unusual for most cities – had an arm running facilities that generated power. And in 1996, power generation was to be deregulated in Canada – which meant that a heavily regulated city agency was going to be thrown into a competitive energy market.

In a step of breathtaking courage and forethought, Edmonton’s leaders made a remarkable choice. They decided to change their city charter to enable the provision of certain services by a private firm that could generate profits. And the next part is what is breathtaking: Edmonton spun-off most of the utility functions into a private profit-making firm and EPCOR was born.

Who are the shareholders? The city is – 100% shareholders. But shareholders, not a direct governing body. EPCOR has a Board of Directors – served by some of the best and strongest business minds in Canada and the US. But elected officials are not on the Board. Elected officials are both ratepayers and shareholders, concerned about services and a return. The Board is concerned about shareholder value, product and service delivery, and increasing profits.

Profits that go to the City of Edmonton! And in 2015, EPCOR delivered dividends to the city that represent 15-20% of total property tax receipts. You read that right. For every 5 dollars the city receives in property tax revenue, it receives 1 dollar from EPCOR. Think of the property tax receipts in your city, and imagine one fifth more revenue coming in – or property taxes reduced by 1/5. And from an agency delivering a service that is otherwise just an expense on the municipal ledgers, and often a very big one that grows each year! (Note this model is not without its detractors including columnist Lorne Gunter at the Edmonton Sun: Edmontonians shouldn’t be soaked over water consumpton,)

EPCOR’s path to significant profitability was not immediate, nor assured. Like any private company, it must continue to perform, keep existing customers while finding new ones, and continue to improve the performance and efficiency of its services. Yet unlike any other private company of which I am aware, the beneficiaries are everyone in Edmonton – an entire city of residents and taxpayers. Every dollar EPCOR can pay in a dividend is a dollar that can stay in the pocket of Edmonton’s taxpayers.

I was fortunate to spend several days in Edmonton with the amazing folks from EPCOR, joined by Bernadette Conant, the enthusiastic and dedicated chief of the Canadian Water Network (CWN). I found out about EPCOR almost on a fluke – I had agreed to come to Toronto to speak to the CWN. One of the reasons I agree to speak is that I think DC Water has learned some things that might be valuable to our compatriots in the water industry.

The other reason is selfish. I meet someone, or learn something, that is invaluable to DC Water and me on every trip. On this trip to Toronto, taken in the middle of a Siberian winter, I hit pay dirt. I heard about EPCOR and met Steven Stanley, their Senior Vice President for Commercial Services. After the initial taste, I could not wait to get myself to Edmonton to learn more.

EPCOR as a private firm follows standard business practices. They subject all their processes to comparisons to best-in-class benchmarks and seek to improve on a constant basis. Cost of service and productivity is carefully measured and evaluated. As important, though, every service offered by EPCOR is also viewed as a potential profit center. If a team is good at maintaining fire hydrants, or training field personnel – how can that skill be transformed into a service that can be offered to other water authorities?

Although EPCOR originally initiated its business model by improving productivity and offering core services – it has since expanded into a broader range of services. Building on its hard-won experience in Edmonton, and now in serving many other municipalities and businesses that require water services, EPCOR can now help conceive, design, build, finance and operate a facility, or some subset or the whole of these tasks – up to ownership of the assets – for the appropriate fee.

Photo courtesy of http://www.cobraintegratedsystems.com

The cultural mindset is easy to feel when visiting EPCOR’s facilities. Every employee is enlisted in an effort to improve service and efficiency. Since great performance has opened doors to new customers or new markets, EPCOR has never had to downsize or let people go. Instead, it is far bigger today than when it began. EPCOR is hiring people, building value, and putting people to work!

I will write in the days ahead of how I would see the EPCOR model being relevant to the US. In fact, EPCOR bought concessions from American Water in Arizona and New Mexico, and is expanding its market share in the US – particularly in the West. While I believe that EPCOR’s success or failure rides fundamentally on the capability of its management and staff – I also think it probably helps that they are selling mostly to a municipal market. And any buyer in that market understands that their revenue is going to help a fellow city.

DC Water has recently begun marketing its lab services under the DC Water ART (Advancing Research and Technology) brand.

The crucial principle, though, is the adoption of new models of service and performance for public enterprises. For EPCOR, the model is to create a private firm – albeit one that is wholly owned by a public jurisdiction – that can offer services and grow market share, revenues and profits. For others, and DC Water is mostly likely in this camp, how can a successful public agency market and sell services that it offers to its own customers – to other jurisdictions in order to save money for both parties?

DC Water and other high performing enterprises can sell services at a price that generates non-ratepayer income.

Municipalities and other agencies can purchase services from other public enterprises at a cost lower than establishing and running these programs for themselves.

Everyone wins!

I am most grateful for everyone at EPCOR who were so generous with their time and advice during my visit, which included Stephen Stanley, Susan Ancel, Jim McKee, John Elford and Audrey Cudrak.

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2 Comments

This is a really exciting idea – especially as compared with a traditional P3. Did you know that several cities in Germany do this for most of their public works (Electricity, Public Transit, etc.)?

I learned this when I took part in the John J. McCloy Fellowship in Urban Affairs, which sends professionals and elected officials under 50 to Germany to learn how they run things there – and German fellows come back here to see how we do things as well.